Terms PSD2 and TPP have been popping up quite a lot recently, so what are they? Well, if you live in the EU or at least spend some time here, you might want to know. Both of these abbreviations are super important to your daily finances and the security of your information. In this article, we are going to go a bit more in-depth on what role do Third Party Providers or TPPs play in the grand scheme of PSD2.
What is PSD2 and who are TPPs?
PSD2 stands for Payment Services Directive 2 – the second directive to come out of the EU on how banks and other financial institutions should handle payments. The good news is that PSD2 was mostly designed to enable competition and innovation in the financial sector, so the golden rules behind PSD2 are actually aimed at strengthening consumers’ confidence in online payments and preventing cyber fraud and cybercrime.
TPP is short for Third-Party-Provider and is used to describe any kind of participant in the digital payment sphere that is not the user nor the bank. TPPs are companies that offer additional services to PSD2 compliant banks. PSD2 is already in place all throughout the European Union, so PSD2 TPPs are popping up everywhere – however, their current role can be somewhat vague, unless you know your legal things very well.
Should you trust TPPs?
Since, according to the Payment Services Directive, you can grant third-party providers access to your payment accounts, you might be wondering whether PSD2 TPPs are something you should trust. Well, PSD2 is a directive so it does not have to be implemented in all national laws – members of the European Union decide if their laws will include PSD2 or how exactly they’ll implement PSD2 rules.
However, PSD2 TPPs are a great thing because PSD2 creates a lot of new opportunities for digital payments. That’s why all member states have decided to stand united and implement it. PSD2 is all about making the financial market more efficient and removing entry barriers – it’s also focused on empowering consumers to make safe online-payments without fear of losing their funds or private data. In the meantime, PSD2 TPPs will help compliant banks grow and develop by offering other services to their customers, so these Third-Parties are a good thing and can be trusted!
Besides, in order to get licensed and certified as a Third-Party, you must pass a difficult and challenging check. You can read more about it here – https://nordigen.com/en/psd2/tpp/.
What kind of TPPs of PSD2 are there?
There are so many PSD2 TPPs out there that it’s hard to even list them all! However, the most common third party providers are payment aggregators – they help you organize your payments by providing a single destination for different accounts. In short, you can link multiple banks through one API/tool/connection point.
Other PSD2 TPPs include online-payment processors, e-commerce order-management services, customized payment applications, virtual-currency providers, e-wallet companies and chargeback companies. Most of them are relatively new entrants to the market and they offer cutting-edge or at least somewhat innovative solutions to modern problems that can occur when people try to do things, related to making payments or managing their money.
As a PSD2 TPP user in the EU, there are some things you simply need to be aware of which might affect your money. Here they are:
- Third parties can only work with people who have given them permission – if you refuse a TPP from accessing your bank account
- PSD2 TPPs can’t ask for confidential information like your account number or password, that’s why PSD2 mandates data security protocols
- A Third Party must be licensed before being allowed to manage or collect any kind of data